Politics of Hate

In describing the current situation in these United States, and in
many of the world’s other superpowers, we here at Casey Research have
often used the word “intractable”… as in, “impossible to resolve.”

While that may not be technically accurate – because there is no
problem related to economics that can’t be solved if one is willing to
swallow sufficiently strong medicine – it is a correct assessment, given
the overwhelming role that politics now play in the economy.

In a recent edition of The Casey Report,
I observed that the largest and most persistent bubble of all over the
last half-century has been the bubble in government – making the ones
witnessed in dot-com stocks and housing mere blips by comparison.

The following chart is particularly illustrative of that contention.

As you can see, the level of government spending (state being the blue
area, and federal being the red) as a percentage of GDP has grown to
levels last seen during the unprecedented mobilization undertaken to
fight WWII – a period marked by the government takeover of entire
industries, rationing of all key commodities, wage and price controls,
and much more.

Though it is an overused analogy, the chart paints a perfect picture of
a frog in a pot of water slowly being brought to a boil.

The economic trap the government has stumbled into opened decades ago,
as a result of the nation’s leaders misunderstanding both the basics of
economics and the complex relationship between the rulers and the
ruled.

To frame the discussion, I would start by pointing out that in order
for a government to be successful, above everything else it needs to
avoid being hated. That’s not to say that it has to be wildly popular,
though that’s never a bad thing, just not actively despised.

Generally speaking, the single most important way that a government
avoids becoming the object of public hate is to maintain things in such
a way that people are able to get by financially.

Sure, people might not like a politician’s ethics, and they might have
strong views about some stupid and destructive government act, but if
people can get up every morning secure in the knowledge that there will
be food on the table and a roof over their heads – that their
businesses will carry on in a more or less predictable manner – their
opinion about the government will never rise to the level of hate.

Thus, the overarching goals of government should be to assure that,
come what may, the footing of the economy is firm and that the property
of the citizenry is protected. Given that the government doesn’t
actually create wealth of its own accord, the best way to accomplish
these goals is relatively simple and can be summed up as, “Do no harm.”

Which brings us to the trap the U.S. government stepped into, as did virtually all of its peers around the globe.

Decades ago, the government simply decided to expand its role beyond
providing the basic services that make some contribution to a smoothly
operating society. While it may have done so with the best of
intentions, the record makes it clear that its motivations have
increasingly been political in nature.

Returning to the chart, you can see that in the early part of the 20th
century there was almost no growth in government. You can also see that
that period of quietude was sharply disrupted by WWI, then the Great
Depression, which was followed by WWII – each of which jacked the
government’s role in the economy markedly higher. And once the trend
got started, it has largely continued unabated until today. Note the
latest spike, at the far-right side of the chart, and you don’t need to
wonder where things are headed next.

The government could have avoided stepping into this trap simply by
resisting all calls for it to expand the limits of its role in order to
“do something” about this societal ill or aspiration – rigorously
leaving such matters to the people themselves to address.

While successive generations might have groused about the government
being uncaring or unsympathetic to the needs of the needy, by being
tight-fisted and modest in its exertions, the government’s finances
would have remained solid as a rock. That in turn would keep the weight
of the government’s dead hand on the economy light and readily
manageable. As a consequence, come what might, the vast majority of
people could count on being able to earn a good dollar and keep most of
it for their own purposes.

In other words, if back in 1905 or so, the government had just said
“no” to foreign adventures and domestic largess, we would today be
living in a different world altogether.

Let me get to the point, because it has important implications for us all.

If the government had kept its role limited and its finances in good
shape, people might not love it, but they’d respect it – and, more to
the point, they wouldn’t hate it.

However, by expanding as it has, the government has drained its
treasury. Then, politically unable and unwilling to stop its spending,
it kept going – racking up the largest debt in history.

That has brought us to a crossroads.

One path leads to more spending, in which case the currency will
collapse, wiping out the remaining wealth of the citizenry… resulting in
a hateful population.

The other leads to overt default and a wholesale unwinding of the
government’s massive role in the economy, again wiping out the wealth of
the citizenry and resulting in a hateful population.

In either scenario, a government anxious to avoid the worst can be
expected to raise taxes and take other desperate measures to avoid
failure. Hungary, Poland, Bulgaria, and other nations have recently made
pension grabs; we can expect to see that in the U.S. as well before
this is over. Again, at the same time that these moves may help the
government stay afloat awhile longer, it plants the seeds of public
hatred and cements its eventual downfall.

In our strongly held view, the government will continue to opt for the
path of more spending – until it simply can’t, at which point the first
path will lead back to the second. And so, no matter what it does at
this point, the government will soon find itself faced with serious and
widespread discontent.

Throw a heavily militarized constabulary into the mix, and the potential arises for the situation to get very ugly, very fast.

That the government remains firmly committed to its spending becomes
obvious in a recent Reuters article about plans by the new Republican
House to reduce Obama’s already diluted $100 million in planned federal
budget cuts, to just $50 million.

And this while the government continues deficit spending to the tune of more than $100 billion a month. What a joke. What a bad, bad joke.

In the current edition of The Casey Report,
senior editors Doug Casey, Bud Conrad, and Terry Coxon chart the
frothy economic waters we are finding ourselves in – and provide
practical advice how to navigate them to your benefit.

You have to make your own decision as to how you’ll protect yourself
about what’s coming, whether by just diversifying into inflation
hedges, or diversifying your life internationally – but whatever you do,
don’t be lulled into complacency by any temporary pick-up in economic
activity engendered by the government’s monetization. It’s a trap.

[Right now, you can get The Casey Report for only $98
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